5118 NEW ZEALAND GAZETTE, No. 202 1 DECEMBER 2005

Receipt of Accommodation Supplement by a Boarding Service Provider

A boarding service provider may be entitled to an accommodation supplement. The Ministry of Social Development assesses each applicant’s entitlement based on a set of guidelines. The assessment of entitlement takes into account such factors as accommodation costs, income, assets, family status, employment status and residential location. Where a boarding service provider is entitled to an accommodation supplement, the annual capital standard-cost will be reduced by the annual amount of the accommodation supplement received. The examples in appendix C illustrate how the receipt of an accommodation supplement affects the calculation of the annual capital standard-cost for the use of domestic accommodation.

Number of Occupants and Number of Boarders

Boarding service providers will need to record the period(s) during the year when they provide boarding services and the number of occupants in their household during those periods. This will allow them to correctly apply the rules relating to the annual capital standard-cost component. The calculation will involve a degree of rounding of the number of weeks for which boarding services were provided and (where family members come and go during the year) a fair estimate of the average number of occupants during that time.

Where a child (under 18 years) accompanies a parent or guardian in a private boarding service arrangement and there is no separate charge for keep of the child, they should not be counted as an occupant for the purpose of the annual capital standard-cost calculation.

Where a boarding service provider has a shared custody arrangement for a child over five years of age, the child should not be counted as an occupant for the purpose of the annual capital standard-cost calculation if they reside with the boarding service provider for less than half of the year. The same will apply where a dependent child is absent from the household while attending boarding school or living elsewhere for more than half of the year.

Children under five years of age should not be counted as occupants (for the purpose of the annual capital standard-cost calculation) or as boarders (for the purpose of the weekly standard-cost calculations), where they are accompanying a parent or guardian boarding in a private boarding service arrangement. Similarly, any child under five years of age of the boarding service provider should not be counted.

Family visitors and guests accommodated without charge on a short-term stay are not counted as occupants for the purpose of the standard-cost calculation or as boarders for the weekly standard-cost calculations.

Reimbursements

Reimbursements for specific additional costs are not viewed as income nor are these costs viewed as an expense incurred by the boarding service provider, eg, payment received from the boarder for telephone toll calls.

Impact on Previously Accepted Practice

Prior to the issue of Determination DET 05/03, boarding service providers may have applied the practice as published in Tax Information Bulletin, Vol. 5, No. 9 (February 1994).

Determination DET 05/03 supersedes any previously accepted practice, which is now withdrawn. Boarding service providers, in calculating their income tax liability, must now elect to use either the standard-cost basis (as detailed in DET 05/03) or the actual-cost basis. In adopting the actual-cost basis, boarding service providers must also ensure sufficient records are kept to support their claimed tax position.

Returning Income

The standard-cost components will assist the majority of boarding service providers to readily identify if they are required to return assessable income. The flowchart on the next page outlines the use of the standard-cost basis. The flowchart also shows the key stages when boarding service providers should give consideration to an election on whether to use the standard-cost or actual-cost basis.

When total payments received exceed the aggregate annualised value of weekly and capital standard-cost for the income year, boarding service providers are required to return the excess as assessable income.

Inland Revenue will accept, where there is more than one host providing boarding services, the returning of assessable income by the boarding service provider who is most directly involved on a day-to-day basis. This is to minimise compliance costs by only requiring one householder to file the return.

Where boarding service providers elect to claim expenditure on the actual-cost basis, they will be required to show all payments received as income and claim actual expenditure incurred in a return of income. In addition, they are required to keep sufficient records to support their tax position.

Standard-costs as Determined

Determination DET 05/03 sets out the components of standard-costs that are likely to be incurred by boarding service providers. The standard-costs are determined based on special tax rules as provided for under current tax law. They are to be used for tax purposes only and cannot be used for any other purpose. The determined weekly standard-costs are not intended as any guide to the amounts which taxpayers can or should charge on a weekly basis, but rather reflect the maximum expenditure recognised by Inland Revenue as likely incurred by boarding service providers. Uniform weekly standard-cost rates are applied nationally to maintain simplicity and minimise tax compliance costs but it is accepted that there may be significant variations in the circumstances and amounts charged.

Should boarding service providers consider that the standard-cost components do not reflect the higher costs incurred in their situation, they may elect to use the actual-cost basis. They must keep sufficient records to support their tax position.

The variance in weekly standard-cost rates for smaller households with one to two boarders versus households with three or more boarders, acknowledge that larger households are more economical to operate when looking at costs incurred on average for each person. The weekly standard-cost rates are based on average costs, which are set on the higher end in favour of boarding service providers.